Two Reasons Why Today’s Housing Market Isn’t a Bubble

You may be reading headlines and hearing talk about a potential housing bubble or a crash, but it’s important to understand that the data and expert opinions tell a different story. A recent survey from Pulsenomics asked over one hundred housing market experts and real estate economists if they believe the housing market is in a bubble. The results indicate most experts don’t think that’s the case (see graph below):

Two Reasons Why Today’s Housing Market Isn’t a Bubble | MyKCM

As the graph shows, a strong majority (60%) said the real estate market is not currently in a bubble. In the same survey, experts give the following reasons why this isn’t like 2008:

  • The recent growth in home prices is because of demographics and low inventory
  • Credit risks are low because underwriting and lending standards are sound

If you’re concerned a crash may be coming, here’s a deep dive into those two key factors that should help ease your concerns.

1. Low Housing Inventory Is Causing Home Prices To Rise

The supply of homes available for sale needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued price appreciation.

As the graph below shows, there were too many homes for sale from 2007 to 2010 (many of which were short sales and foreclosures), and that caused prices to tumble. Today, there’s still a shortage of inventory, which is causing ongoing home price appreciation (see graph below):

Inventory is nothing like the last time. Prices are rising because there’s a healthy demand for homeownership at the same time there’s a limited supply of homes for sale. Odeta Kushi, Deputy Chief Economist at First American, explains:

“The fundamentals driving house price growth in the U.S. remain intact. . . . The demand for homes continues to exceed the supply of homes for sale, which is keeping house price growth high.”

2. Mortgage Lending Standards Today Are Nothing Like the Last Time

During the housing bubble, it was much easier to get a mortgage than it is today. Here’s a graph showing the mortgage volume issued to purchasers with a credit score of less than 620 during the housing boom, and the subsequent volume in the years after:

This graph helps show one element of why mortgage standards are nothing like they were the last time. Purchasers who acquired a mortgage over the last decade are much more qualified than they were in the years leading up to the crash.

Bottom Line

A majority of experts agree we’re not in a housing bubble. That’s because home price growth is backed by strong housing market fundamentals and lending standards are much tighter today. If you have questions, let’s connect to discuss why today’s housing market is nothing like 2008.

How Homeownership Can Help Shield You from Inflation

If you’re following along with the news today, you’ve likely heard about rising inflation. You’re also likely feeling the impact in your day-to-day life as prices go up for gas, groceries, and more. These rising consumer costs can put a pinch on your wallet and make you re-evaluate any big purchases you have planned to ensure they’re still worthwhile.

If you’ve been thinking about purchasing a home this year, you’re probably wondering if you should continue down that path or if it makes more sense to wait. While the answer depends on your situation, here’s how homeownership can help you combat the rising costs that come with inflation.

Homeownership Offers Stability and Security

Investopedia explains that during a period of high inflation, prices rise across the board. That’s true for things like food, entertainment, and other goods and services, even housing. Both rental prices and home prices are on the rise. So, as a buyer, how can you protect yourself from increasing costs? The answer lies in homeownership.

Buying a home allows you to stabilize what’s typically your biggest monthly expense: your housing cost. If you get a fixed-rate mortgage on your home, you lock in your monthly payment for the duration of your loan, often 15 to 30 years. James Royal, Senior Wealth Management Reporter at Bankrate, says:

A fixed-rate mortgage allows you to maintain the biggest portion of housing expenses at the same payment. Sure, property taxes will rise and other expenses may creep up, but your monthly housing payment remains the same.” 

So even if other prices rise, your housing payment will be a reliable amount that can help keep your budget in check. If you rent, you don’t have that same benefit, and you won’t be protected from rising housing costs.

Use Home Price Appreciation to Your Benefit

While it’s true rising mortgage rates and home prices mean buying a house today costs more than it did a year ago, you still have an opportunity to set yourself up for a long-term win. Buying now lets you lock in at today’s rates and prices before both climbs higher.

In inflationary times, it’s especially important to invest your money in an asset that traditionally holds or grows in value. The graph below shows how home price appreciation outperformed inflation in most decades going all the way back to the seventies – making homeownership a historically strong hedge against inflation (see graph below):

So, what does that mean for you? Today, experts say home prices will only go up from here thanks to the ongoing imbalance in supply and demand. Once you buy a house, any home price appreciation that does occur will be good for your equity and your net worth. And since homes are typically assets that grow in value (even in inflationary times), you have peace of mind that history shows your investment is a strong one.

Bottom Line

If you’re ready to buy a home, it may make sense to move forward with your plans despite rising inflation. If you want expert advice on your specific situation and how to time your purchase, let’s connect.

What’s Happening with Mortgage Rates?

Based on the Primary Mortgage Market Survey from Freddie Mac, the average 30-year fixed-rate mortgage has increased by 1.2% (3.22% to 4.42%) since January of this year. The rate jumped by more than a quarter of a point from just a week ago. Here’s a visual to show how mortgage rate movement throughout 2021 was steady compared to the rapid increase in mortgage rates this year:

What’s Happening with Mortgage Rates, and Where Will They Go from Here? | MyKCM

Just a few months ago, Freddie Mac projected mortgage rates would average 3.6% in 2022. Earlier this month, Fannie Mae forecast mortgage rates would average 3.8% in 2022. As the chart above shows, rates have already surpassed those projections.

Sam Khater, Chief Economist at Freddie Mac, explained in a press release last week:

“This week, the 30-year fixed-rate mortgage increased by more than a quarter of a percent as mortgage rates across all loan types continued to move up. Rising inflation, escalating geopolitical uncertainty and the Federal Reserve’s actions are driving rates higher and weakening consumers’ purchasing power.”

Where Are Mortgage Rates Going from Here?

In a recent article by Bankrate, several industry experts weighed in on where rates might be headed going forward. Here are some of their forecasts:

Greg McBride, Chief Financial Analyst, Bankrate:

“With inflation figures continuing to surprise to the upside, mortgage rates will remain above 4.0% on the 30-year fixed.”

Nadia Evangelou, Senior Economist and Director of Forecasting, National Association of Realtors (NAR):

“While higher short-term interest rates will push up mortgage rates, I expect some of this impact to be mitigated eventually through lower inflation. Thus, I expect the 30-year fixed mortgage rate to continue to rise, although we aren’t likely to see the big jumps that occurred over the past few weeks.”

Len Kiefer, Deputy Chief Economist, Freddie Mac:

“Mortgage rates are likely to continue to move higher throughout the balance of 2022, although the pace of rate increases is likely to moderate.”

What Does This Mean for You if You’re Looking To Buy a Home?

With both mortgage rates and home values expected to increase throughout the year, it would be better to buy sooner rather than later if you’re able. That’s because it’ll cost you more the longer you wait. But, there is a possible silver lining to buying a home right now. While you’ll be paying a higher price and a higher mortgage rate than you would have last year, rising prices do have a long-term benefit once you buy.

If you purchase a home today valued at $400,000 and put 10% down, you would be taking out a $360,000 mortgage. According to mortgagecalculator.net, at a 4.42% fixed mortgage rate, your mortgage payment would be $1,807 a month (this does not include insurance, taxes, and other fees because those vary by location).

Now, let’s put that mortgage payment into a new perspective based on the substantial growth in equity that comes with the escalation in home prices. Every quarter, Pulsenomics surveys a panel of over 100 economists, investment strategists, and housing market analysts about their expectations for future home prices in the United States. Last week, Pulsenomics released their latest Home Price Expectation Survey. The survey reveals that the average of the experts’ forecasts calls for a 9% increase in home values in 2022.

Based on those projections, a $400,000 house you buy today could be valued at $436,000 by this time next year. If you break that down, that means the equity in your home would increase by $3,000 a month over that period. That’s greater than the estimated monthly payment above. Granted, the increase in your net worth is tied to the home, but it is one way to put the home price appreciation to use in a way that benefits you.

Bottom Line

Paying a higher price for a home and a higher mortgage rate can be a difficult pill to swallow. However, waiting will just cost you more. If you’re ready, willing, and able to buy a home, now will be a better time than a year, or even six months from now. Let’s connect to begin the process today.

Massive Equity Gains In 2021

The Average Homeowner Gained $56,700 in Equity this year!

When you think of homeownership, what’s the first thing that comes to mind? Chances are you might focus on the non-financial benefits, like the security or stability having a home provides. But what about equity? While it can be overlooked, a homeowner’s equity helps build long-term wealth over time. Here’s a look at what equity is and why it matters.

For a homeowner, your equity is the current value of your home minus what you owe on the loan. So, as home values climb, your equity does too. That’s exactly what’s happening today. There aren’t enough homes on the market to meet buyer demand, so bidding wars and multiple offers are driving prices up. That’s because people are willing to pay more to buy a home. Right now, this low supply and high demand are giving current homeowners a significant equity boost.

Dr. Frank Nothaft, Chief Economist at CoreLogic, explains it like this:

Home price growth is the principal driver of home equity creation. The CoreLogic Home Price Index reported home prices were up 17.7% for the past 12 months ending September, spurring the record gains in home equity wealth.

To find out just how much rising home values have impacted equity, we turn to the latest Homeowner Equity Insights from CoreLogic. According to that report, the average homeowner’s equity has grown by $56,700 over the last 12 months.

Curious how your state stacks up? Check out the map below to find out the average equity gain for your area.

The Average Homeowner Gained over $56,700 in Equity over the Past Year | Real Estate Made Simple | By Ashley Boals

How Rising Equity Impacts You

If you’re already a homeowner, equity not only builds your wealth, it also opens doors for you to achieve your goals. It works like this: when you sell your house, the equity you built up comes back to you in the sale. You can use those proceeds to fuel your next move, especially if you’ve decided your needs have changed and you’re looking for something new.

If you’re thinking about becoming a homeowner, understanding the importance of equity can help you realize why homeownership is a worthwhile goal. It builds your wealth and gives you peace of mind that your investment is a wise one, not just from a lifestyle perspective, but from a financial one too.

Bottom Line

Whether you’re a current homeowner or you’re ready to become one, it’s important to know how equity works and why it matters. If this inspires you to make a move, let’s connect to explore your options and find out what steps you need to take next.

4 Ways To Use Your Equity

Your equity is a powerful tool that can help you achieve your goals as a homeowner. And chances are, your equity grew substantially over the past year. According to the latest Equity Insights Report from CoreLogic, homeowners gained an average of $51,500 in equity over the past year.

If you’re looking for the best ways to use your growing equity, here are four options:

1. Use Your Equity To Buy a Home That Fits Your Needs

If you’re finding you no longer have the space you need, it might be time to move into a larger home. Or, it’s possible you have too much space and would like something smaller. No matter the situation, consider using your equity to power a move into a home that fits your changing lifestyle. Moving into a larger home can provide extra space for remote work or loved ones. Downsizing, on the other hand, may mean saving time and money by caring for a smaller home.

2. Move to the Location of Your Dreams

If the size of your home isn’t a challenge but your current location is, it could be time to relocate to a new area. Maybe you enjoy vacationing in the mountains, at the beach, or another area, and you’re dreaming of living there year-round. Or perhaps the distance between you and your loved ones is greater than you’d like, and you want to close the gap. No matter what, your home equity can fuel your move to the location where you really want to live.

3. Start a New Business

If you’re not ready to move into a new home, you can use your equity to invest in a new business venture. As the U.S. Small Business Administration Office of Advocacy says:

“There is an estimate of 31.7 million small business owners in the United States, many of them started their business with the equity they had in their home.

While it’s not recommended that homeowners use their equity for unnecessary spending, leveraging your equity to start a business that you’re passionate about can potentially grow your nest egg further.

4. Fund an Education

Whether you have a loved one preparing to head off to college or you’re planning to go back to school yourself, the thought of paying for higher education can be daunting. In either situation, using a portion of your growing equity can help with those costs, so you can make an investment in someone’s future.

Bottom Line

Your equity can help you achieve your goals. If you’re unsure how much equity you have in your home, let’s connect today so you can start planning your next move.